Hinshaw & Culbertson's Insurance Litigation and Regulatory Law Blog provides coverage on insurance industry related case law, regulation and legislation at both the national and state level. We alsoMore...

The latest update features a new section on "Divestiture of Control," that discusses the notice of proposed divestiture that any controlling insurer seeking to divest its controlling interest in that insurer must file with the Commissioner. The section describes how the Commissioner will deal with confidentiality concerns surrounding the notice. The new section also notes the possibility that the Commissioner may require parties seeking to divest control to file for formal approval of the transaction.

The revised chapter also features a new practice note as to the California Department of Insurance's requirements as to exhibits that must accompany the filing of Form A Information Statement when there are various acts that will, directly or indirectly, lead to a change in control of a domestic insurer or person controlling a domestic insurer.

Section 5.06[1] newly points out an exception to the exemption from registration granted an admitted foreign insurer whose domiciliary jurisdiction has disclosure requirements and standards that are substantially similar to California's requirements.

A recent California appellate decision (In Re Insurance Installment Fee Cases, 211 Cal. App. 4th 1395) held that an installment fee – i.e, a fee charged to a policyholder who pays premium in installments under a payment plan separate from the policy – is not considered “premium.”

The court found that the fee was consideration for a benefit separate from the insurance and paid under an agreement separate from the policy. As such, the insurer was not required to either:

However, insurers should be aware that the ruling in In Re Insurance Installment Fee Cases does not overrule or conflict with an existing line of California cases analyzing whether installment fees are part of “gross premium” for purposes of premium tax reporting and payment.

The premium tax cases suggest that installment fees collected by insurers are not gross premium if they represent the time value of money (e.g., interest that the insurer could collect by investing the premium rather than allowing the insured to pay later). However, fees intended to cover the insurer’s administrative costs (e.g., expenses of collecting multiple payments) may be includable as gross premium.

The In Re Insurance Installment Fee Cases court did not rely on the premium tax cases “because those cases and opinions … [are in] a different context than that presented by this case.” We note that the different treatment of installment fees in different context is not without justification. In premium tax cases, the question is whether the fees constitute part of an insurer’s income. For purposes of policy and rate issues under the Insurance Code, however, the focus is instead on the bargain between the insurer and the policyholder.

failed to follow the statutory procedures mandated by Insurance Code section 790.06 for taking action against insurers based on unfair practices not listed in section 790.03.

The insurance industry raised the ruling by Judge Smith, as persuasive authority, in the ACIC case as well as in another pending administrative action. While it remains to be seen what affect the Torchmark ruling will have in these other cases, the decision may be helping insurers gain some much-needed leverage when dealing with the Department and its sometimes strong-arm enforcement actions.

The Department, for its part, has sought to downplay the significance of the Torchmark decision, noting that it is not precedential. At least one senior attorney for the Department has urged that Torchmark is not a "final" decision - a claim that we discount.

The trend in the courts, nonetheless, appears to be moving towards holding the Department to the intended limits of the Unfair Practices Act. We will continue to monitor future activities in this area.